Tuesday, October 19, 2010
Democrats Are at Odds on Relevance of Keynes
Recently there has been growing disagreements between liberal economists and elected democrats over the $787 billion stimulus plan. The economists argue that the stimulus, bases on the economic policies of Keynes, was a success while many elected officials have begun to distance themselves from this policy. Keynes' policies have been the core of democratic economic policies and "a principle of the party's identity". However, due to the growing unpopularity of the stimulus package signed into law by President Obama, many democratic officials have shifted their view on economic policy. This could have an impact well beyond the current elections as pressure increases for the Federal Reserve to "deploy monetary policy" as well as an increase in pressure to "rein in the growth of government spending, slash the budget deficit, and reduce national debt". Although many top democrats are advocating even more stimulus spending it seems unlikely that this will occur with elected democrats increasingly distancing themselves from this policy.
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2 comments:
while tightening fiscal policy might be a good idea during the upside of a business cycle, this may not be the appropriate solution right now. The US government should do everything it can to help boost the economy and get it moving, even if that means a larger deficit. However, the article mentions an important point with regard to stimulus: good projects need to be highlighted more. Investing in road repairs will not help the US get out of the recession but more investment in the private sector and labor market will be beneficial.
I agree with Eshara. I also feel that the reason many Democrats are now "at odds" with Keynes and the stimulus is because it is much harder to run on a policy such as the stimulus when the effects and alternatives are not clear to voters. The message, "Even though our recovery is slow, that stimulus helped keep us out of a depression and we'd be way worse off if we hadn't passed it" is not as easy for voters to understand as the message "The stimulus 'didn't work'" when voters have no conception of the alternative.
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